By Kimbal Musk, CEO OneRiot, posted here.

The Microsoft / Yahoo! deal was a great day for the consumer and a great day for search. Choice is back, innovation is back. Search is interesting once again.

I love Google. It’s a killer search engine and a great company. But over the past decade, Google has outmaneuvered its competition as well as its partners to become so dominant that it virtually doesn’t have competition anymore, and its partners have no options. picture-340They’re not technically a monopoly, but in all aspects of doing business on the web, they have become one. Innovation has been stifled and consumers have lost out. In a classic turn of events, Google has become the company they grew up to hate: Microsoft. Or at least what Microsoft was in the 90’s.

In the search business, volume is everything. You need it to improve your core search quality, you need it to get advertisers to work with you, you need it to leverage your infrastructure costs, etc, etc. Google has been ruthless (not evil… there’s a difference ☺ ) in making sure that their competitors don’t get distribution deals to get that volume. The more volume they have, the more advertiser dollars they get, the more capital they have to buy more distribution relationships, the more advertiser dollars they get, the more capital they have to buy more distribution relationships, and so forth.

There are plenty of examples of this, but MySpace is the most public one. Google went in to buy that business no matter what. And it worked. At one point, according to some sources, MySpace was sending Google about 10% of its searches. Google may not have made that much money on the deal (they likely lost money on it), but the deal kept traffic away from Yahoo, and secured Google’s position with advertisers. A brilliant move (one of many) by Google, that slowly but surely took away Yahoo’s ability to compete. The fact that Yahoo was spread too thin made it that much easier for Google.

Enter Microsoft. They know that everything on the web revolves around search. It’s the gateway to the Internet, and whoever owns the gateway, owns the customer. And as the web is (albeit very slowly) making headway into their core products of Windows and Office, they simply could not allow themselves to be cut out of web search. They also decided a long time ago that Live.com was not a competitive product, and they needed to leapfrog if they wanted to make search a core business for them. And they needed search volume. Hence major investments in Bing, (which started years ago) to leapfrog Live.com. Hence trying to buy Yahoo last year to get the volume. Hence today’s announcement with Yahoo. This is a killer deal for Microsoft. In fact, it was a necessary deal for Microsoft. Without it, it would have lost to Google no matter how good Bing was in the end.

As for Yahoo, I hope that this will enable it to focus on its existing, enormous customer base. There is a lot of loyalty out there for Yahoo, and I believe that they will have a great business if they focus on delivering a quality experience to their users. From Yahoo.com, to My.Yahoo, to Yahoo Mail, to Yahoo content, they can nail it if they focus on it. And of course they will make a fortune out of search, with virtually no cost basis now that Microsoft is footing the bill.

Now for the stuff we really care about: what does it mean for you and me. Well, if you’re a start-up in the search space, this the best time since 1995. Consumers are going to start thinking about their choices again (i.e. there is something out there besides Google), and that opens up opportunities to build new brands with new ways to search the web. Whether that’s realtime search, or engines like Wolfram Alpha, it’s the dawn of a whole new world in online search.

And get ready to watch the battle of titans. Bing showed us that it’s possible to scratch Google’s armor. Bing+Yahoo could even put Google on the defensive, which is when they will turn to start-ups for help. And of course, a confident Bing will be looking to build on its momentum, and there’s no better and quicker way to do that than through partnerships with fast moving, innovative start-ups. We’ve seen how Microsoft and Yahoo work with startups at close quarters (Microsoft recently launched a version of IE8 bundled with OneRiot, and of course we were a Yahoo! BOSS launch partner and continue to work with them on realtime search innovation). I’ll say it again; this is the best time to be a start-up in the search space since 1995.

Consumers are going to start thinking about their choices again – it’s the dawn of a whole new world in online search.

If you’re a consumer, get ready for choice. Yes, Google is great, but freedom to choose is better. I want Google to feel like they need to work for my business. It will keep them on their toes and will make them a better company in the long run. They’ve done an amazing job over the past decade. But innovation has stagnated both inside and outside of Google. The consumer has suffered. How different would search be today if Google was forced to innovate over the past 5 years? We’ll never know the answer, but 5 years from now will be a different world. That I can say for sure.

Let the games begin!